Court Removes Substitute Trustee of Irrevocable Trust as the Court Deems Substitute Trustee is an Alter Ego of Grantor
In the trust and estates appellate litigation case of In Re Fumo Irrevocable Children’s Trust, PICS Case No. 14-1714 (Pa. Super. Oct. 17, 2014) the Honorable Patricia H. Jenkins, writing on behalf of the Pennsylvania Superior Court, held that the Orphans’ court ruled properly in father’s appeal from a decree removing a trustee of the trust father had created for his daughter and appointing a successor trustee.
In 2006, father created inter vivos irrevocable trusts for son and daughter and named Pauciello as trustee of both trusts. The children’s trusts became a 49.5 percent owner of the assets of the Fumo Family Limited Partnership. In 2009, father was convicted of mail fraud and other offenses and, before going to federal prison, obtained a $1.4 million loan from FFLP with a repayment date of 2013. In 2011 and 2012, father modified the loan to extend the repayment date and then defaulted on the loan in its modified form by changing the ownership of the properties that secured the loan.
On Sept. 11, 2011, Pauciello announced she was resigning as trustee and no one performed the duties of trustee between September 2011 and Oct. 23, 2012, when Pauciello purported to appoint Bennett as successor trustee. Daughter filed a petition opposing Bennett’s appointment as successor trustee and requesting termination of the trust. In response, father and Bennett appointed Repici, father’s longtime friend, as successor trustee in place of Bennett. On Aug, 1, 2013, the orphan’s court declared the appointment of Repici null and void, denied father’s motion to keep the record open so that he could testify in court following his release from prison and appointed daughter’s nominee as successor trustee. Father appealed.
The orphans’ court properly decreed Bennett’s appointment of Repici null and void. The trust agreement required Pauciello to appoint a successor trustee within 60 days after she became unwilling to serve as trustee. She did not appoint Bennett until 13 months after she became unwilling to serve.
The orphans’ court also properly decreed that father’s appointment of Repici was null and void because the trust agreement prohibited father from serving as successor trustee and the orphan court’s opinion made clear that it regarded Repici as father’s alter ego due to their close, longtime friendship.
Additionally, the orphan’s court acted within its discretion under 20 Pa.C.S. 7766(b)(4) due to a substantial change in circumstances in the management of the daughter’s trust. Ample evidence supported the orphan court’s finding that father engineered Repici’s appointment as trustee to serve father’s ends instead of to protect daughter’s interests. Father had stated that he wanted to “own nothing yet control everything” and he borrowed money from FFLP and then placed the loan in default and refused to cure the default. The trust had been without effective leadership for years and needed a trustee who was willing and able to protect the daughter’s interests.
The orphans’ court acted within its discretion in refusing to keep the record open until father could be released form prison and testify. Father could easily have testified via deposition from prison or requested the orphans’ court to order his production in court. He did not exercise either option. Moreover, father’s allegation of prejudice was speculative.
Reference: Digest of Recent Opinions, Pennsylvania Law Weekly, 37 PLW 1034 (November 4, 2014)
Filed Under: Trust & Estates; Trust and Estates Litigation, Removal of Trustee
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